Vat cuts may not be passed on to consumers - Minister 

The VAT rate for hairdressers, restaurants and restaurants in hotels will drop from 13.5% to 9% from July 1 onwards. It will cost €232m for half a year and over €600m for a full year.

Enterprise Minister Peter Burke has defended the Budget 2026 VAT cuts for hospitality, as he admitted that it may not be viable for businesses to pass it on to customers.

The Government was lambasted by the opposition for introducing such sweeping VAT cuts for hospitality that extended to large fast food outlets, branding it a “McBudget” and “Big Mac” Budget.

The VAT rate for hairdressers, restaurants and restaurants in hotels will drop from 13.5% to 9% from July 1 onwards. It will cost €232m for half a year and over €600m for a full year.

Speaking to the Irish Examiner last week in Copenhagen, Denmark, Taoiseach Micheál Martin stated that he would like to see any VAT cuts “reflected in the pricing”.

However, in his post-budget press conference, Mr Burke denied that he was suggesting that he did not want restaurants to pass on the cut but questioned if their businesses can be both viable and affordable.

“I've said very clearly that this is a viability mechanism,” he said.

“People can argue, can you have affordability and viability together? It is very difficult.

“People have to offer value to the sector for consumers. Obviously, if people aren't [getting] value, they're not going to a restaurant or they're not going to a coffee shop.

“Business owners are very good in their own commercial acumen [and] know where they have to provide value to customers.

“But critically, if you want to keep the businesses open, keep the doors open, keep them employing people and hopefully with value as well, customers will go in.” Mr Burke said it was not possible to exclude fast food businesses, arguing that the EU VAT directive does not allow the Government to “discriminate between clients under the tax code”, and that it was “never a case whereby you could differentiate by that law on the basis of turnover or size of premises”.

He also reiterated that many of the businesses are franchised and owned by families rather than large corporations.

He noted that 200,000 people are working in the hospitality sector. Some 230 of the businesses are termed “large businesses”, with 75% of the businesses employing fewer than 10 people.

He further argued that there had been a 4.2% drop in full-time employment in the hospitality sector in the last quarter, and a 60% increase in liquidations over the last year.

“The businesses are not making many. Many are on the brink,” Mr Burke added.

The Small Firms Association expressed disappointment with the budget, saying that the reduced VAT rate applies to a quarter of small businesses and that other businesses also must contend with the same higher costs. This includes additional pressures caused by the increase in minimum wage and the introduction of the auto-enrolment pension scheme in January.

Mr Burke stated that the Department of Enterprise will work with these other businesses and that there is a “very significant suite of grants” available.

Amid anger over the lack of tax cuts for workers, Mr Burke defended his VAT cut, stating that his measures, including the changes to the research and development credits, accounted for 17% of the €1.3bn tax package.

Mr Burke unsuccessfully lobbied for an excise reduction that would bring down the cost of a pint. He stated that this is a “well merited proposal” and stated that he has another four budgets to try and secure it.

Elsewhere in the budget, €1.3bn will be allocated for enterprise and tourism development, alongside enhancements to the Digital Games Tax Relief and relief on foreign interest earnings.

The minimum wage will increase by 65c to €14.15 from January 1, benefiting 201,000 workers.

The Department will also establish an AI Office of Ireland at an initial cost of €1.4m. This will be set up in the lead-up to an AI Summit that will be held next year as part of Ireland’s six-month presidency of the Council of the European Union from July 2026.